The Group delivered a resilient operational performance and improved returns to shareholders despite the tough COVID-19 trading conditions in its two major markets, namely South Africa and the UK.

Operating profit for the year, adjusted for goodwill and intangible asset impairments in 2020, increased 23.5% to R3.0 billion. The turnaround strategy in Office started to gain traction as the business returned to profitability for the period.

The Group’s strong profit growth was supported by efficient inventory and margin management, tight expense control and a decrease in debtors costs, as the debtors book showed a strong recovery.

The performance for the period resulted in an increase in headline earnings per share of 26.8% to 520.3 cents (2020: 410.4 cents).

The Group has remained strongly cash generative as cash from operations totalled R4.1 billion, with R1.1 billion returned to shareholders in dividend payments. The share buy-back programme continued and 19.3 million shares were repurchased for R768 million.

The dividend cover was maintained at 1.5 times and the annual cash dividend increased by 25% to 350 cents per share (2020: 280 cents per share), comprising an interim dividend of 232 cents per share and final dividend of 118 cents per share.

It is pleasing to report that the Group achieved all six of its board-approved financial targets, with the targets for return on assets, inventory turn and return on equity being exceeded.

EXCELLENCE IN INTEGRATED REPORTING

Truworths International continues to be recognised for its high standard of integrated reporting. In the 2021 Ernst & Young (EY) Excellence in Integrated Reporting Awards, the Group’s 2020 Integrated Report was ranked seventh (2019 report: ranked eighth) among the 100 largest companies on the JSE, again the only retailer in the top ten. The Group has been ranked in the top ten in these awards for 14 consecutive years, the only company to achieve this distinction.

GROUP FINANCIAL AND OPERATING TARGETS

Financial targets are published to provide guidance to shareholders on the Group’s financial performance objectives. Targets and performance are benchmarked against JSE-listed apparel retailers and leading global listed fashion retailers. The targets are reviewed annually by the board, based on actual performance and the medium-term outlook. Note that the global benchmarks may not be directly comparable in terms of the impact of the COVID-19 pandemic due to the timing of their respective year‑ends.

The revised medium-term financial targets are included here.

Group

Statements of comprehensive income

Sale of merchandise

Group retail sales increased by 0.5% from R16.9 billion to R17.0 billion. Account sales comprised 52% (2020: 51%) of retail sales for the period. Account sales increased by 2.8% with cash sales decreasing by 2.0%.

Group sale of merchandise, which comprises Group retail sales, together with wholesale sales and delivery fee income, less adjustments, increased by 0.1% to R16.4 billion.

Group trading space reduced by 1.8% (decrease of 1.1% in Truworths and 22.0% in Office) as a net 32 stores were closed across all brands. Truworths opened 26 stores and closed 27, while Office closed 31, including 3 concession stores.

At the end of the period the Group had 891 stores, including 13 concession outlets (2020: 923 stores, including 16 concession outlets).

Gross margin

The Group’s gross margin expanded to 51.0% (2020: 50.8%). Truworths’ gross margin contracted to 54.1% (2020: 55.6%), mainly due to higher levels of sales promotion activity. The gross margin in Office expanded to 41.5% (2020: 38.7%), mainly as a result of a higher proportion of full-price sales due to improved stock control.

Trading expenses

The Group continued to exercise rigorous expense control. After adjusting for the goodwill and intangible assets impairments in 2020 (hereinafter referred to as ‘an adjusted basis’), trading expenses for the period decreased by 13.5% to R6.5 billion (2020: R7.5 billion) and constituted 39.4% (2020: 45.5%) of sale of merchandise. Trading expenses benefited mainly from lower depreciation in respect of right-of-use assets, employment cost savings as a result of furlough scheme benefits, the business rates holidays and lower trade receivable costs.

An analysis of trading expenses is included in the Truworths and Office sections in this report

Interest received

Interest received decreased 34.0% to R762 million due to a material reduction in the South African repo rate since the start of the COVID-19 pandemic as well as a reduction in the size of the Truworths Africa segment’s gross debtors book relative to the prior period.

Trading profit

Group trading profit on an adjusted basis increased 75.1% to R2.3 billion owing largely to the lower trading expenses. The trading margin increased to 13.8% relative to the 7.9% reported in the prior period, on an adjusted basis.

Operating profit

Adjusted Group operating profit increased 23.5% to R3.0 billion. The operating margin increased to 18.5% relative to the 15.0% reported in the prior period, on an adjusted basis.

Finance costs

Finance costs decreased by 17.3% to R292 million (2020: R353 million) mainly due to the reduction in finance costs in respect of lease liabilities and the repayment of borrowings.

Earnings

Headline earnings per share (HEPS) and diluted HEPS increased 26.8% and 26.3% to 520.3 cents (2020: 410.4 cents) and 516.7 cents (2020: 409.0 cents) respectively.

Basic earnings per share (EPS) and diluted basic EPS increased to 480.2 cents and 476.9 cents, respectively, compared to the prior period’s basic loss per share (LPS) of 133.0 cents and diluted LPS of 132.5 cents.

Statements of financial position

Net asset value

The Group’s financial position remains strong with the net asset value per share increasing 7.7% to 1 562 cents.

Right-of-use assets

Right-of-use assets decreased 17.2% to R2.2 billion, partially due to the net impairment of right-of-use assets in the current period of R202 million before tax (2020: R379 million before tax) resulting from the ongoing challenging trading conditions in the UK.

Inventory

Inventories decreased by 12.7% to R1.8 billion (2020: R2.0 billion), driven by a 16.6% decrease (in Sterling) in Office’s inventory. Inventory turn was 4.6 times (2020: 4.0 times), exceeding the targeted performance of 3.5 to 4.5 times.

In Truworths gross inventory decreased by 1% to R1.4 billion and the inventory turn increased to 4.9 times (2020: 4.2 times, although impacted by the 5-week hard lockdown). In Office the inventory turn decreased to 3.8 times (in Sterling) (2020: 4.0 times).

Cash

Group net cash (excluding IFRS 16 lease liabilities) increased from R44 million at the prior period-end to R577 million, after the repurchase of shares totalling R768 million.

Capital management

The Group generated R4.1 billion in cash from operations and this funded the following:

• Dividend payments of R1.1 billion
• Lease liability payments in terms of IFRS 16 of R1.1 billion
• Capital expenditure of R320 million
• Share buy-backs of R768 million

Since the inception of the share buy-back programme in 2002, 125.3 million shares have been repurchased at a total cost of nearly R4.5 billion at an average price of R35.52 per share.

The cash realisation rate, which is a measure of how profits are converted into cash, was 107% for the current period (2020: 136%). In the prior period the cash realisation rate benefited from the timing of creditors and tax payments in the 2019 financial period, which increased the cash inflow from operations and consequently the cash realisation rate.

The Group’s net cash to equity ratio at the end of the current period was 9.3% (2020: 0.7%) and net cash to EBITDA was 0.1 times (2020: nil times).

During the period the Group utilised the revolving credit facilities available to it (Truworths R900 million, Office £32.5 million). Truworths settled the term loan (R500 million) and refinanced its revolving credit facility on more favourable terms. Office extended its revolving credit facility until January 2022.

TRUWORTHS AFRICA AND OFFICE BUSINESS SEGMENTS

Management measures the operating results of the Truworths Africa and Office business segments separately for the purpose of resource allocation and performance assessment. Segmental performance is reported on an IFRS basis and evaluated with reference to revenue, gross margin, operating margin, EBITDA and profit after tax.

*Elimination of investment in Office as well as inter-segment assets and liabilities.

Truworths

This analysis covers the performance of the Truworths Africa business segment, which operates in South Africa and in the rest of Africa, and includes YDE.

Sale of merchandise

Retail sales in Truworths increased by 5.5% to R13.0 billion (2020: R12.3 billion), with account and cash sales increasing by 2.8% and 11.8% respectively.

Account sales comprised 68% (2020: 70%) of retail sales. Like-for-like store retail sales increased by 4.3% with product inflation averaging 1.4% (2020: product deflation of 1.2%).

Retail space decreased by 1.1% as Truworths opened 26 stores and closed 27.

The South African operations accounted for 96.5% (2020: 96.7%) of the Truworths Africa segment’s retail sales, with the 35 (2020: 36) stores in the rest of Africa contributing the balance.

Trading densities grew by 7.1% to R34 649 per m² (2020: R32 357 per m²).

Gross margin

The gross margin contracted from 55.6% to 54.1% owing to higher markdowns due to increased sales promotion activity in the post hard lockdown period.

Trading expenses

Trading expenses decreased by 10% to R4.9 billion. Trading expenses as a percentage of sale of merchandise decreased to 39.9% from 46.7% in the prior period.

• Depreciation and amortisation decreased by 8%. Excluding non-comparable stores, depreciation and amortisation of property, plant and equipment and software decreased 8%. Depreciation of the right-of-use assets decreased by 6% due to a reduction in the number of leases accounted for under IFRS 16 and the impact over time of rental reversions and lower rental escalations.
• Employment costs increased by 14%. Excluding non-comparable stores, incentives and other non-comparable costs, employment costs increased by 6%.
• Occupancy costs, which comprise rentals not accounted for in terms of IFRS 16 as well as other occupancy costs, increased by 53%. Excluding prior-period rent concessions (R82 million) and rentals not accounted for in terms of IFRS 16 (2021: R116 million, 2020: R23 million), occupancy costs increased 2%.
• Trade receivable costs decreased by 52%. The doubtful debt allowance decreased from 30.1% at June 2020 to 23.4% of gross trade receivables, while gross trade receivables decreased 3%, resulting in a R403 million credit to the income statement. Collection and other trade receivable costs increased 7%. The total cost of accounts of R902 million exceeded total income from accounts (including notional interest) of R823 million by R79 million (2020: R624 million).
• Other operating costs, excluding foreign exchange losses and impairments in the current and prior period, increased by 8%.

Interest received

Interest received decreased 33% to R777 million due to a material reduction in the South African repo rate since the start of the COVID-19 pandemic as well as a reduction in the Truworths gross trade receivables book relative to the prior period.

Finance costs

Finance costs reduced by R34 million to R244 million (2020: R278 million) mainly due to the reduction in finance costs in respect of lease liabilities and a decrease in interest on term loans.

Trading and operating profit

Trading profit increased by 42% to R2 075 million (2020: R1 461 million). The trading margin increased from 12.5% to 16.8% mainly due to the decrease in trading expenses and in particular trade receivable costs.

Operating profit (profit before finance costs and tax) increased by 9% to R2.9 billion (2020: R2.6 billion), with the operating margin increasing from 22.4% to 23.2%.

Office

This analysis covers the financial performance of the Office business segment, which operates primarily in the UK, with a presence in Germany and the Republic of Ireland.

Sale of merchandise

Sale of merchandise declined by 17.3% to £196 million (2020: £238 million) for the period while retail sales declined by 17.4% to £192 million (2020: £233 million) as a result of the prolonged store closures and a reduction in the store footprint. Trading space decreased 22.0% following the closure of 31 stores, including 3 concession outlets.

E-commerce showed continued strong growth, particularly when stores were closed during lockdown, with online retail sales increasing 18.2% to £121 million and accounting for 63% of total retail sales (2020: 44%). Store retail sales decreased 45% to £71 million.

The UK accounted for 94% of retail sales, Germany 3% and the Republic of Ireland 3%.

*Including 13 concession stores (Jun 2020: 16 concession stores).

Gross margin

The gross margin expanded to 41.5% (2020: 38.7%) owing mainly to a higher proportion of merchandise being sold at full price. The margin was, however, adversely impacted by the decline in the sales contribution from the higher-margin made-to-order (MTO) category.

Trading expenses

• Depreciation and amortisation decreased 41% due to assets becoming fully depreciated and a reduced right-of-use assets balance. Office incurred capital expenditure of £1.2 million (2020: £2.8 million).
• Employment costs decreased 29% as a result of the headcount reduction due to the redundancy process as well as the closure of non-performing stores. Office received funding of £4.3 million from the UK, German and Ireland Government relief schemes for furloughed employees during the COVID-19 lockdowns.
• Occupancy costs decreased 55% or £9.3 million due to lower rentals as a result of the concession outlet closures during lockdown, the business rates holiday granted in the UK and Ireland (£7.8 million), and lower rentals due to temporary store closures in lockdown and permanent closures.
• Other operating costs decreased 77% as a consequence of the prior-period impairment of trademarks of £118.2 million.

Operating profit

Office reported an operating profit of £8.9 million (2020: loss of £128.1 million) with the operating margin improving from -53.9% to 4.5%.

Group information technology

Capital expenditure of R90 million (2020: R102 million) was invested in leading-edge information technology (IT) systems over the past year to support the retail operations and supply chain. The Group has committed R122 million for Truworths and Office IT capital expenditure for the 2022 reporting period.

Group financial plans for 2022

Capital expenditure of R389 million (Truworths R332 million and Office £3 million) has been committed for the 2022 financial period and will be applied mainly as follows:

• R252 million for new stores and the expansion and refurbishment of existing stores
• R122 million for computer infrastructure and software
• R5 million for buildings
• R4 million for distribution facilities

There are plans to review our distribution facilities with the objective of increasing capacity to facilitate future growth.

Trading space is expected to be unchanged in Truworths and decrease by approximately 12% in Office as further stores are closed as leases expire.

The trading outlook for Truworths and Office for the 2022 financial period is covered in the Chief Executive Officer’s Report.

Group medium-term financial targets

The Group’s medium-term financial and operating targets have been reviewed, and in some cases revised, to reflect the Group’s expected performance over the next three years. These targets set out below have been approved by the board.

Appreciation

Thank you to our board, partners, service providers and to our Group finance team for their dedication and commitment in striving to achieve the highest standards of financial reporting. I look forward to engaging with you and other stakeholders in my new role in the year ahead.

Emanuel Cristaudo
Chief Financial Officer